Boeing profit beats, but shares fall on revenue

CHICAGO (Reuters) - Boeing Co reported a higher-than-expected quarterly net profit on Wednesday as the commercial airplane market recovers from a downturn, but its shares slipped 1.5 percent as revenue fell short of estimates.

The engine and body of the Boeing 787 Dreamliner is seen at the Farnborough International Airshow 2010 in Farnborough, southern England July 19, 2010. REUTERS/Kieran Doherty

The world’s largest aerospace and defense company stood by its forecast for 2011 revenue improvements and reiterated expectations for a rebound in commercial orders.

The decline in Boeing shares pressured the Dow Jones industrial average. Government data showed an unexpected drop in new orders for durable goods -- mainly aircraft -- in June.

“It’s much more on the revenue miss and, specifically, greater expected softness on the defense side than potentially people were expecting,” Kenneth Herbert, an analyst at Wedbush Securities, said of the share decline.

Boeing’s second-quarter revenue fell 9 percent to $15.6 billion, short of analysts’ consensus estimate of $16.1 billion.

The company reaffirmed its 2010 revenue outlook for its Defense, Space & Security unit at between $32 billion and $33 billion, with operating margins reduced to 9.5 percent from 10 percent. The change in the margins forecast partly reflects the current contracting environment, Boeing said.

The company also reaffirmed its outlook for commercial deliveries and its revenue forecast for the commercial unit for 2010: $31 billion to $32 billion. Boeing is the No. 2 commercial plane maker after rival Airbus.

In 2009 Boeing and Airbus were dogged by fewer orders as airlines saw falling travel demand in a sagging economy. Military budget cuts also weighed on Boeing.

But a recovering economy and brighter outlook for airlines point to a stronger 2010. Boeing found more demand than expected at the Farnborough Airshow last week, logging orders for 103 planes with a list price of $10.4 billion. Airbus took orders for 130 planes with a list price of $13.2 billion.

Boeing delivered 114 planes in the second quarter, down from 125 a year earlier.

“With our commercial markets recovering, and the priorities of our government customers gaining clarity, we remain well positioned for growth in 2011 and beyond,” Chief Executive James McNerney said in a statement.


Second-quarter net profit fell to $787 million, or $1.06 per share, from $998 million, or $1.41 per share, a year earlier. The results beat a consensus Wall Street estimate of $1.01 per share, according to Thomson Reuters I/B/E/S. Industry experts were generally upbeat about the results.

“Margins look pretty respectable given the pricing environment,” said Richard Aboulafia, an aerospace analyst at the Teal Group. “It was all based on the deliveries mix.”

Revenue from the commercial airplane division slipped 12 percent to $7.4 billion on fewer deliveries.

Boeing Commercial Airplanes took 88 orders in the quarter, while 20 orders were withdrawn. The commercial order backlog amounted to 3,304 aircraft valued at $252 billion.

“That to me is the sign of ... a first year of a multiyear upcycle,” said C.K. Cooper & Co analyst Alex Hamilton. “That underscores that a recovery is underway.”

Second-quarter revenue from the defense unit fell 8 percent to $8 billion on lower network and space systems volume. Revenue from Boeing Capital declined 3 percent to $162 million.


Boeing reiterated that it plans the first delivery of the lightweight carbon-composite 787 Dreamliner, which is already more than two years behind schedule, in the fourth quarter. But it also said the delivery may slip into 2011.

Boeing also hopes to make the first delivery of its new 747-8F in the fourth quarter. But the company repeated that it may delay delivery to early 2011.

Boeing offered a little clarity on its debate over whether to redesign its hot-selling narrow-body 737 or simply put a new engine in the old design, which would bring a more fuel-efficient plane to market faster.

“On balance, the customer feedback ... is sort of pushing us toward a newer airplane,” McNerney said on a conference call with reporters and analysts.

He said Boeing is mulling whether to again increase the production rate for the 737. Last month the company said it would raise the rate to 35 per month in early 2012. McNerney said he is targeting early fall for a decision that hinges largely on the 737 supply chain.

“There are some suppliers that would have to make investments in plant and equipment to meet significantly higher rates,” he said.

Reporting by Kyle Peterson; Editing by Lisa Von Ahn, Matthew Lewis and John Wallace